May 3, 1991
CLA-2 CO:R:C:S 555706 DSNCATEGORY:CLASSIFICATIONTARIFF NO.:9802.00.80
District Director of Customs
3600 E. Paisano Drive
El Paso, Texas 79905RE: Protest Nos. 2402-8-000080; 2402-9-000009; 2402-9-000021, concerning denial of item 807.00, TSUS, Data General; Texas Instruments; C.S.D. 85- 25; 19 CFR 10.12; 19 CFR 10.16; substantial transformation; 555774; 055526; 067824; 723135; 731953
Dear Sir:
The above-referenced protests contest your denial of the partial duty exemption under item 807.00, Tariff Schedules of the United States (TSUS) (the precursor provision to subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS)), claimed by ADC Telecommunications, Inc. (herein referred to as the protestant) to certain telecommunications products from Mexico.FACTS:
The protestant imported light emitting diodes (herein referred to as LEDs) from Mexico through the El Paso, Texas, port of entry, from June 30, 1988, through September 5, 1988. In the U.S., the LED's were combined with lamp strip assemblies, which were then exported to Mexico to be incorporated into one of five ADC telecommunications products. When the final telecommunications products were imported into the U.S., the protestant requested a duty allowance under item 807.00, TSUS, for the cost or value of the LEDs.
Your office determined that the imported telecommunications products are properly classifiable under item 687.57, TSUS, dutiable at the rate of 8.5% ad valorem, and that no duty allowance should be granted under item 807.00, TSUS, for the cost
or value of the LEDs. In this protest, counsel for protestant claims that the LEDs are entitled to an item 807.00, TSUS, duty allowance since they became products of the U.S. when used as components in the production of lamp strip assemblies in the U.S.
According to protestant's submissions, lamp strip assemblies, when incorporated into telecommunications products, function as signals to the users that certain telecommunciation equipment are interconnected with other such equipment.
The first process in the production of the lamp strip assemblies is the creation of a base which provides the electrical contacts to the LEDs. The base consists of a series of metal electrical connections on a molded plastic structure. The LEDs are then extracted from magazines and are connected to the base by bending and trimming the wires to fit the configurations of the base. Each LED must be inserted in the base so that each corresponding electrical contact is matched accordingly. Protestant maintains that the insertion of the LEDs into the base is a complex operation performed by expensive, specialized production equipment.ISSUE:
Whether foreign-origin LEDs are substantially transformed into products of the U.S. when incorporated into lamp strip assemblies in the U.S., thereby entitling the LEDs to a duty allowance under item 807.00, TSUS, when returned to the U.S. as part of telecommunications products.LAW AND ANALYSIS:
Item 807.00 TSUS, provides a partial duty exemption for:
(a)rticles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape, or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, such as cleaning, lubricating, and painting.
All three requirements of item 807.00, TSUS, must be satisfied before a component may receive a duty allowance. An article entered under this tariff provision is subject to duty upon the full cost or value of the imported assembled article, less the cost or value of the U.S. components assembled therein, upon compliance with the documentary requirements of 19 CFR 10.24.
According to section 10.12(e), Customs Regulations (19 CFR 10.12(e)), a "product of the United States" is an article manufactured within the customs territory of the U.S. and may consist wholly of U.S. components or materials, of U.S. and foreign components or materials, or wholly of foreign components or materials. If the article consists wholly or partially of foreign components or materials, the manufacturing process must be such that the foreign components or materials have been substantially transformed into a new and different article, or have been merged into a new and different article.
A substantial transformation occurs when, as a result of manufacturing processes, a new and different article emerges, having a distinctive name, character, or use, which is different from that originally possessed by the article or material before being subjected to the manufacturing process. See, Texas Instruments v. United States, 681 F.2d 778, 782 (CCPA 1982); and section 10.14(b), Customs Regulations (19 CFR 10.14(b)).
Counsel for protestant alleges that the character and use of the LEDs are changed when used in the production of lamp strip assemblies. Counsel asserts that the LEDs are distinct commercial entities when imported into the U.S. The LEDs contain their own product designation code but have uses in and out of the telecommunications industry. However, when the LEDs are incorporated into the lamp strip assemblies, they still have different names and product designation codes but their uses are limited to the telecommunications industry.
Counsel cites Data General Corporation v. United States, 4 CIT 182, (1982) to substantiate his claims. In Data General, the court held certain programmable read only memories (PROMs) were substantially transformed in the U.S. when programmed into computer integrated circuit chips. The court concluded that programming alters the character of a PROM because of the time, expense and expertise which is required to program a PROM. Id. at 185.
[A] PROM when programmed, is no longer a PROM.... [P]rogramming alters the character of a PROM. Programming changes the pattern of interconnections within the PROM. A distinct physical change is effected in the PROM by the opening or closing of the fuses, depending on the method of programming.... The 'essence' of the article, its pattern of interconnections or stored memory, is established by programming.... The PROM has no function or use except for programming. Id. at 186.
In our opinion, the facts in this case are distinguishable from those in Data General. Unlike the complex programming of the PROM which effected a distinct physical change in the PROM, the operations performed on the LEDs in the instant case consist merely of trimming and bending the lead wires of the LEDs and inserting the wires into the base of the lamp strip assembly. No distinct physical change in the LED is effected by its insertion into the base. The "essence" of the LED is established in Mexico when it is created and is not significantly affected by its subsequent incorportation into the lamp strip assembly.
We have previously held that wire which is cut to length, stripped and fitted with terminals has not been substantially transformed into a product of the country where the described operations have occurred. See, Headquarters Ruling Letter (HRL) 555774 of December 10, 1990, 055526 of June 6, 1978 (a substantial transformation does not occur when a coil assembly is formed by soldering terminals to electrical wire which has been machine wound cut, trimmed, and tinned); HRL 067824 of November 1, 1982 (assembly of Japanese-origin wire with terminals does not create a new and different article of commerce with a different name, character, and use); HRL 723135 of September 23, 1983 (wire rope with attached fittings has not been substantially transformed); and HRL 731953 of April 27, 1990 (a substantial tranformation does not occur when head assemblies are attached to the ends of a cable).
In C.S.D. 85-25, 19 Cust.Bull. 544 (1985) (HRL 071827 of September 25, 1984), Customs held that an assembly process will not constitute a substantial transformation unless the operation is "complex and meaningful." Customs criteria for whether an operation is "complex and meaningful" depends on the nature of the operation, including the number of components assembled, number of different operations involved, and whether a significant period of time, skill, detail and quality control are necessary for the assembly operation. This criteria for determining whether a substantial transformation occurs is applied on a case-by-case basis.
In the instant case, no substantial transformation occurs based on the above criteria. As previously stated, the assembly operations are not complex in nature and do not require a significant period of time and skill to assemble the LEDs into the finished products. Moreover, the LEDs have not become new articles of commerce, with a new name, character or use. The essential character and use of the imported LEDs are to function as signaling devices. After the lead wires of the LEDs are bent and trimmed and attached to the base, the essential character and use of the LEDs remains the same-- they are signaling devices. The base merely provides the electrical contacts to cause the LEDs to signal the user that the communciation equipment is interconnected with other such equipment.HOLDING:
On the basis of the information presented, it is our opinion that the LEDs have not been substantially transformed into products of the U.S., but rather remain products of Mexico. Therefore, no allowance in duty may be made under item 807.00, TSUS, for the cost or value of the LEDs when returned to the U.S. as part of telecommunication products. The protest should be denied in full. A copy of this decision should be attached to the Form 19, Notice of Action, to be sent to the protestant.
Sincerely,
John Durant, Director
Commercial Rulings Division